Effects of Removing Agricultural Production Factors Subsidies on Sugar Beet Production in Iran

Subsidy is one the important means in consuming agricultural inputs, but as the government is responsible for its costs the countries which have enough financial resources and the extension of economical activities depends on supplying cheap agricultural inputs, can pay for that. Surveying this problem, in this study we examine the effects of eliminating chemical fertilizer and seed subsidies on sugar beet production in Iran. This paper uses panel data for ten provinces during the period of 1379-86. First the sugar beet production function using econometrics methods is estimated, then elasticity of inputs are estimated and after that input¢s demand functions are calculated using production function method. The results of input¢s demand function indicated that the demand elasticity is low and farmers use water and chemical fertilizer in third area (uneconomic region). Therefore, the subsidy of seed had low effect on its consumption and sugar beet production, and it increased sugar beet production only up to 0.048 percent. According to chemical fertilizer result, it can be concluded that its subsidy even decreases sugar beet production 0.025 percent. Finally we can conclude that subsidy eliminating doesn’t assist to decrease input consumption and environmental damages but it can remove financial burden from government without having negative effect on production.